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socrateaser, Attorney

Category: Bankruptcy Law

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Experience: Attorney and Real Estate Broker -- Retired (mostly)

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I own a winery. I have entered into an agreement for purchasing

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I own a winery. I have entered into an agreement for purchasing grape. Because of the economic condition I won't produce wine. I have found a buyer to buy the bulk wine from me for $12,000. Under the agreement I owe the sellers of grape $20,000. I have to pay them next week under the terms of the contract. They are not accepting $12,000 payment as payment under the agreement for full release. They are also not taking full title to the bulk wine to try to sell the bulk wine themselves. I have to vacate the custom crush facilities. If I am forced to move my barrels from the custom crush facilities, I have to basically throw their bulk wine in the drain. If I am forced to throw their wine away, Do they have a duty to accept the $12,000 payment (as mitigation of damages) from me and then they would have a claim for $8,000? Or if I throw away their wine do they have a claim for me for $20,000? Under Californi food act, they have a producer's lien on the wine.

The seller has no duty to to accept less than what it's entitled to under the contract. Mitigating damages merely means to avoid the consequences of a contract breach to the extent reasonably possible.

Here, you are offering to purchase for $8,000 less than the contract terms, but you want a full release in exchange. That's not damage mitigation -- it's a substitutie contract. Big difference.

No. I do not expect to get a full release. I expect to have them accept the $12k purchase price release the lien so I can sell the bulk wine to the proposed purchaser and get them at least $12k. If they want to sue me for $8k difference, they can do so. So, in effect, they would accept the $12k while reserving their right to come after me for the remaining amount under the contract. I will have to vacate the custom crush facilities next week. So, if they don't accept the payment terms, I will have to throw away the wine. They will then have a $20k claim against me vs. $8k claim. Do they not have a duty to accept the $12k at that point under a theory of mitigation of damages and then have them come after me for the remaining $8k? In effect, because I have to vacate the premises, I have to throw their wine away and will not have a buyer and they will be out (and I wil be have a claim against me) for $20k instead of $8k.

If you have a written contract with a buyer, you can offer toassign that contract to the seller, in exchange for a release for the value of the contract. If the seller refuses to accept the assignment, then that would be proof of the seller's failure to mitigate damages, which would provide you with a defense to the breach of contract up to the amount of the proposed assignment.

The point is that you need to be able to prove to a court that you bargained in good faith and that you attempted to avoid the consequences of the down market, and that the seller refused to mitigate its own damages.

Also, you could defend the remainder of the claim on grounds of commercial frustration of purpose, which is a supervening act which was not reasonably foreseeable in advance and which destroys a known purpose of the contract. No one could have foreseen the level of economic collapse that has occurred.

And, in fact, you could argue for the rescission/reformation of the entire contract on grounds of mutual mistake, because both parties were mistaken about the reasonable value of the subject matter. Your proof would be the buyer's contract demonstrates that fair market value for the produce is unconscionable (shockingly unfair) due to the economic collapse.

- I have an email purchase and sale agreement for the sale of the bulk wine. Do I have to disclose the name of the buyer as well? Or can I write them that I offer to assign the agreement to them and leave it at that and see what they say? I am sure that they will NOT accept my offer to transfer the agreement to them because they think they can get a better price.

The possibility that the seller can get a better price is not your problem. That would be the seller's duty to mitigate damages -- it must accept the best offer available. If they have asserted an opinion in writing that they believe that they can get a better price, and that is the reason why they are rejecting your assignment, then they are just providing better evidence for you.

As far as your "email purchase and sale agreement" goes, if there is a bona fide agreement between you and the buyer in which you agree to deliver a specified quanity by a specified date and for a specified price, then you can assign that agreement to the seller. If the seller refuses to accept, then it will have failed to mitigate damages.

Note1: you must notify the seller that you do not intend to pay the $20,000, although you don't have to state the reasons why, and that you are offering the $12,000 assignment as a substitute contract. The seller needs to be on notice that you don't intend to perform -- otherwise, it can claim that it didn't need to mitigate damages, because no damages had arisen at the time of your offer to assign the contract.

Note2: If you have a bona fide contract with the buyer, then I don't know why you would have any qualms about revealing the buyer's identity to the seller. It just demonstrates that there is no "funny business" going on.

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